This summer saw a raft of proposed tax changes that created an unprecedented uproar from small business owners, professionals and farmers. Some of these changes will be implemented right away and some will go back to the drawing board for revision. I have listed some of these below and would recommend that for more in-depth advice to consult with your accounting professional to develop tax strategies.
Income Sprinkling: 2017 looks to be last year this will be allowed. Changes were implemented to limit family income sprinkling with spouses and other family members. Such income earned by those 18 or older will be subject to a ‘reasonableness’ test and if found to be ‘unreasonable’ the individual will be taxed at their maximum rate.
Allowable Passive Corporate Investment Income: New measures are being put in place to limit the tax deferral advantages from passive investments held in a private corporation. Details will be provided in the 2018 Federal Budget and will probably limit this income to $50,000. At this point, it looks like plans already in place will be grandfathered in.
Shareholder Manager: If you are a shareholder manager you should take steps to properly structure your compensation with the right mix of salary, bonus and dividend income. There are a lot of variables here especially with provincial tax rates. Your mix needs to be determined by your tax professional. You can also consider paying a reasonable salary to your wife or children for any services they provide especially if their tax rate is lower than yours. This also provides them with the benefit of earned income for CPP and RRSP purposes.
Repay Loans due to Your Corporation within the Prescribed Period: If you took a loan or advance from your corporation during the year make sure that you repay this within the prescribed period allowed. Otherwise, you will have to include it as income as a taxable benefit, plus you will have to pay interest on the loan to your corporation. Any time you borrow from your corporation be sure to review this with your tax advisor.
Maximize Your Capital Gains Deduction: Remember that the cumulative deduction is $837,716 for the sale of shares of a qualified small business, corporate farm, family farm or share of a farm partnership here in Alberta. The sticker here is ‘qualified’. If you are considering selling, be sure to consult with your tax professional first to ensure your business qualifies to use this exemption.
Be Sure to Take Advantage of Unused RRSP Contribution Room: This has to be done by March 1, 2018. If you turned 71 this year, it has to be done by December 31. You can also overpay by $2,000 but there are restrictions.
Contributing to a Registered Charity: An effective way to do this if you own shares, is to donate the shares directly to the charity. Your deduction is at the full share value the day they were transferred over. The charity receives the full value, embedded capital gains disappear and everyone wins except CRA.
This is just a short list of some of the many strategies available. Please don’t wait until the last minute to get advice from your tax advisor. Be proactive and sit down with them early in December to take advantage of any tax strategies that apply to you.
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